HIGH LEVEL REQUIREMNT
SAP Standard Business Process of Treasury & Risk Management
Treasury and risk management Built on SAP’S in-memory SAP S/4HANA Finance software, this solution provides full transparency and on-the-fly analysis across all dimensions of financial data, including cash and liquidity, payments and bank communications, investment and debt, and forecasting. SAP S/4HANA Treasury and Risk Management – Hands-On
Application Goals
● Create and manage process-oriented transactions in Transaction Manager, Market Risk, Credit Risk, Portfolio and Accounting Analyzer.
● Configure and carry out typical business processes in these areas
● Understand the core Treasury process
● To get an overview about the different Treasury processes (Money Market, Foreign Exchange, Derivate, Security, Commodity).
Application Objectives
● Use the support tools for Back-office processing
● Describe the interrelationships in the SAP Transaction Manager application
● Set up the necessary structures for managing liquidity in the short, medium and long term.
● Explain the different ways of monitoring and controlling market and credit risks.
Overview SAP Treasury & Risk management
- Core Treasury Processes
- Connection to other SAP modules and non-SAP systems
- Process Overview Risk Management
Business Processes in Treasury Management
Core Treasury Process
1. Overview Core Treasury process
2. Money Market process
3. Foreign Exchange process
4. Commodity process
5. Security Trading process
6. Derivative process
High Level Description of Core Treasury Processes
1. Overview Core Treasury process
The core Treasury process can be split into the following sectors:
⮚ Master Data (Business Partner, Security Account, Future Account, Security Class, House Bank)
⮚ Transaction Manager (Front, Middle, Back Office and Accounting/Payment)
⮚ Risk Management (Market Risk Analyzer, Credit Risk Analyzer, Portfolio Analyzer, Accounting Analyzer)
⮚ Electronic Bank Statement (upload and posting)
⮚ Hedge and Exposure Management It is possible to link trading platforms (for example Kondor+, 360T) directly to SAP Transaction Manager. Via a real-time data transfer, all relevant field information is uploaded into SAP Transaction Manager.
2. Money Market Process
This sub process includes only the core, relevant process steps for trading money market deals. For money market transactions, only the business partner settings in the role “Counterparty” are required. Before you can use this business partner, a release is required. It is not possible that the same person creates/changes and releases the business partner. Based on the master data settings, a new offer or contract can be created in SAP Transaction Manager (TM) and can then be checked (settled) by the same person or (usually) a second person.
When the contract is settled, a correspondence is created automatically and is sent via for example IDOC or SWIFT directly to the bank, to get the counter confirmation. The bank checks the conditions (for example, interest rate, maturity) and sends back a counter confirmation, which is automatically matched to the contract. After finishing the external check, all relevant contract settings, for example payment details, address are checked internally by a second person. If all settings are correct, this person releases the contract.
In SAP standard a 6 eyes principle can be used. On the due date of each cash flow, the cash flows are released. Only released cash flows can be posted via TBB1. If a payment request is created, the Treasury payment run (Transaction F111 ) is carried out. At the End of the treasury payment run, a payment file is created automatically and is sent to the Bank Communication Manager or to In-House Cash.
The Bank Communication Manager checks the payment again and sends the file to the bank. On the next day, an electronic bank statement (for example, Swift) is imported and posted. With the business transaction code and the reference information in the bank account statement, the system finds the correct position at the interim account and applies the posting logic.
From the Transaction Manager module, a real-time connection to Market Risk Analyzer (calculation of key figures), Credit Risk Analyzer (limit check), Portfolio Analyzer (performance reporting) and Accounting Analyzer (valuation key figures) exists. For the calculation of net present values (NPV), the Market Risk Analyzer must be activated, and Market Data must be available. Based on the calculated NPV, a monthly (with reset) or year-end valuation (without reset) is carried out. For unrealized interest or charges, the accrued cash flow amount till maturity can be determined.
3. Foreign Exchange Process
In this part, only the delta to the Money Market process is described. For Foreign Exchange transactions, it is not possible to create an offer, but when the swap rate, for example, is unknown, the process chain can start with an order. The order could expire or can be carried out. On the due date, the spot or forward FX transaction can be physically delivered, or cash settled.
4. Commodity Process
Depending on the type of product (forward or future), different commodity processes must be distinguished.
Commodity Future Process
The commodity trading process for Futures includes the following functions:
● Future Account Management for all tradable future positions
● Margin Management
● Matching long and short positions
5. Security Trading Process
Important Security transactions are:
● Bonds
● Stocks
● Investment Certificates
● Warrants
● Subscription Rights
The Securities transaction process provides:
• Business Partner and additional master data settings
– Business Partner Role: Issuer
– Business Partner Role: Depository Bank
● Trading active and passive positions
● Transaction and Position Management
● Execution of Corporate Actions
● Different posting transactions for Transaction and Position Management
6. Derivative Process
A derivative is a financial instrument (or, more simply, an agreement between two parties) that has a value based on the expected future price movements of the asset it is linked to, called the underlying (for example FX Rate, Security, Reference Interest Rates). There are many kinds of derivatives, with the most common being swaps, forwards, futures and options. In connection to the product. structures we distinguish between linear derivatives and non linear derivatives. The price movement from a linear derivative is 1:1, or in a fixed relationship to the movement of the underlying.
Linear Derivative Linear Derivatives are:
● SWAP (Interest- or Cross Currency Swap)
● Futures (for example, Interest)
● Forward Rate Agreement (FRA)
● Non-Linear Derivatives Non-Linear Derivatives are:
● FX Options
● Options with different types of underlying, for example securities
● Cap and Floor
Business Processes in Treasury and Risk Management in SAP S/4HANA
Contents
1.Overview SAP Treasury and Risk solution
- Distinguishing the connection to Other SAP Modules and Non-SAP
- Providing a Process Overview on Risk Management
- Understand the End-to-End Processing of Financial
- Transactions Treasury Executive Dashboard Overview
- Using Treasury in a Hybrid Landscape
2.General Master Data
3.The Debt and Investment Management Process
- Using the Money Market Trading Functions
- Describing the Middle Office Functions: Correspondence
- Employing the Back-Office Functions
- Performing Payments
- Multi-Bank Connectivity for interfacing to banks
- Executing Postings to the SAP General Ledger
- Performing the period-end processes
- Understand the simulated period-end close process
- Using Credit Lines
- Describing the Cash Management Integration
- Performing Analysis in the Transaction Manager
- Know the latest Fiori reporting apps
- Managing Securities and other exchange traded products
- Learn about additional position management differentiating criteria
- Gaining efficiency with the Trade Finance Process
4.FX Risk Management Process
- Handling FX Deals
- Employing the FX Risk Management Process
- Executing FX balance sheet hedging
- Using the Exposure Management
- Understand the Hedge Management Cockpit including trade automation
- Understand the Trading Platform Integration on the BTP
- Explaining FX Hedge Management and Hedge Accounting
- Processing Additional Derivatives
5.Market Data Management and the options available for importing market data
6.Global Interest Rate Benchmark Reform / Replacing LIBOR
7.Risk Analysis and Optimization with the Market Risk Analyzer
8.Credit Risk Reporting with the Credit Risk Analyzer
Business Process in Risk Management
Description of Core Risk management Processes
1. Market Risk Analyzer Process
2. Credit Risk Analyzer Process
3. Portfolio Analyzer Process
4. Accounting Analyzer Process
5. Hedge and Exposure Management Process
6. Hedge Management for FAM
1.Market Risk Analyzer Process
In addition to the traditional finance management tasks, such as Cash management and liquidity assurance, effective market risk management is a decisive factor in securing your company’s competitive position. In this field, the Market Risk Analyzer offers extensive position evaluations, such as mark-to-market valuations of financial transactions. It also includes tools for calculating risk and return figures, including exposure, future values, sensitivities, and value at risk.
When you run these reports, you can incorporate both contracted positions and hypothetical financial transactions in the calculations. The valuations can be based on both real and simulated market prices. Together with a high degree of flexibility for creating reports, the Market Risk Analyzer provides a reliable evaluation basis for market risk controlling.
All the different external risks to which companies operating internationally are exposed, it is changes in market prices that are the most critical factors for company success. They can have a profound effect on the amount, present value, or timing of payment flows. Operative business and Treasury transactions alike are affected by market risks. To measure and manage risks fully, it is essential to bring together all risk-related company activities. The reporting can be done via online reports or over the results database.
2. Credit Risk Analyzer Process
The Credit Risk Analyzer focuses on measuring, analyzing and controlling counterparty default risk. The first phase aims to cover the specific risks associated with financial transactions in a company. The Credit Risk Analyzer enables you to control risks actively by setting limits. This is supported by flexible limit management functions with online monitoring, as well as extensive reporting options. As a result, managers are in a position to identify credit risks as they occur and act accordingly. This component enables you to measure, analyze, and control default risks. Default risk refers to the potential loss arising from a financial transaction should the business partner not fulfill his contractual obligations either due to specific, economic or political reasons.
3. Portfolio Analyzer Process
Given that the funds available for investment are usually limited, and that there are numerous investment options to choose from, the crucial question for investment policy decisions is how well the investments have actually performed. The economic success of an investment is therefore a critical factor when it comes to making investment policy decisions. The Portfolio Analyzer is designed to provide the answers to this question. It measures the exact return on investments, compares the results with benchmarks and breaks down the overall performance into its component parts by attributing the individual portfolio positions to the total result. It can also be used to compare individual portfolios (for example, between traders).
The basis for these evaluations is the portfolio structure, which lets you group investments into different categories. You can run evaluations for portfolios at different levels in the portfolio hierarchy, or for an asset category across several portfolios. Portfolio Analyzer is designed to be used to measure the profits from investments from different perspectives and using different methods. The calculations are based on the structure of your portfolio in the portfolio hierarchy. You use characteristics to define the hierarchy. For example, you can choose the sector, country, trader, department, or product type to define the hierarchy. This means that you can create your portfolio flexibly, and organize it into different aggregation levels. You can then calculate the rate of return key figures for each of the levels. In the reporting functions, you can display results for each node that you defined in the portfolio hierarchy.
You can navigate to the data stored for single transactions. To analyze data from different perspectives, for example, as the internal controller, dealer, or marketing employee, you can define multiple portfolio hierarchies, and use them in your analyses.
Portfolio Analyzer creates versions of the portfolio hierarchy, and of the calculations of rates of return and benchmarks. This enables you to look at the figures on which past calculations were based at any time and reproduce and historiography the results.
4. Accounting Analyzer Process
The Accounting Analyzer is also part of SAP Treasury and Risk Management (TRM). It enables to define an environment for daily or weekly accounting centered reporting based on the Transaction Manager data which can be enriched with additional data fields and structured with additional organizational elements. Therefore it enables you to report subledger positions (= TRM positions) and sub positions [created in Hedge Management for FAM (Hedge Management for Financial Asset Management, HM-FAM)] held in the Transaction Manager based on a specific granularity (portfolio hierarchy) with regard to the position component values. The Accounting Analyzer reads the position component values (for example, book value from TPM12) of the subledger positions and sub positions from the Transaction Manager and stores them as key figures in the Result Database (RDB). From the RDB, you can generate reports in the Analyzer Information System (AIS), which displays these key figures.
The Accounting Analyzer saves the results of all evaluations in the Result Database (RDB). The Accounting Analyzer calculates all key figures based on the key figure categories that are predefined in the system. You assign each key figure to an evaluation procedure. You can assign more than one key figure to each evaluation procedure, but each key figure can be assigned only once.
• Single Record Procedure (SRP) In the single record procedure, the system takes the position values in position currency or local currency stored in the Transaction Manager and loads them into the result database.
• Final Results Procedure (FRP) The system translates the position values and flows calculated in the single records procedure into the calculation currency.
5. Hedge and Exposure Management Process
The total Hedge and Exposure Management process can be split into two sectors:
● Hedge Management process
● Exposure Management process
With SAP Exposure Management you can manage all foreign exchange and commodity price risks. From the application point of view, the Exposure Management process has the following steps:
1. Upload of Exposure – TREX1
● Material Management
● Finance
● Transaction Manager
● Sales and Distribution
● Excel upload
● Manual entry
2. Managing Exposure (for example, grouping, hedging) FTREX12
All interest, foreign exchange and commodity price risks can be hedged. From theapplication point of view, the Hedge Management process has the following steps:
2.1. Creation of a Hedge Plan (for example, Maturity, Name) –THMEX
2.2 Allocating Exposure (Foreign Exchange, Commodity or Interest)
● Upload from Exposure Management (FX and Commodity)
● Upload from Transaction Manager – THMMM
● Upload from external system – THERMO● Manual creation
2.3. Specification of Hedge Item (for example, Hedge Category) – THMEX
2.4. Set-up Hedging Relationship (for example, Hedge Strategy, Hedge Rate)– THMEX
2.5. “Initial” Valuation (OCI Posting/P&L)
● Calculation of NPV – TPM60
● Valuation Run – TPM1
2.6. Effectiveness Test – THM80
● Prospective
● Retrospective
2.7. Reclassification
● Manual EC (equity capital) Reclassification – THM54
● Automatic EC (equity capital) Reclassification – THM586.
6.Hedge Management for FAM
The Hedge Management for Financial Asset Management (HM-FAM) enables to perform Fair Value Hedges, Cash flow hedges and Units of Valuation according to German Accounting Principles.
Creation of valuation area and company code-specific hedge plans. A Hedge relationship could be created as follow:
6.1. Manage Hedging Relationship per Valuation Area – TPM100
• Hedging Relationship Detail
• Hedged Item
• Hedging Instrument
• Effectiveness Test
• Documentation
6.2. “Initial” Valuation (OCI Posting/P&L)
o Calculation of NPV – TPM60
o Entering NPV – JHPV
o Valuation Run –TPM13.
6.3 Effectiveness Test – TPM100
• Prospective
• Retrospective
Hint: TPM110 is for mass execution of an effectiveness test. TPM112is for failed effectiveness test reports.
6.4. Reclassification
• Execute Classification – TPM101
